Emergent Research

EMERGENT RESEARCH is focused on better understanding the small business sector of the US and global economy.

Authors

The authors are Steve King and Carolyn Ockels. Steve and Carolyn are partners at Emergent Research and Senior Fellows at the Society for New Communications Research. Carolyn is leading the coworking study and Steve is a member of the project team.

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Emergent Research works with corporate, government and non-profit clients. When we reference organizations that have provided us funding in the last year we will note it.
If we mention a product or service that we received for free or other considerations, we will note it.

It's a well researched, excellent overview of the coworking industry and it "examines the drivers of coworking from the demand and supply side, the industry risks and implications for corporate real estate, as well as information about the owners, coworkers and centers."

The report covers a lot of ground and we found all the chapters interesting.

But we especially liked the sections on corporate coworking. This is because this is a less covered aspect of coworking. Below is a report chart showing the things corporations should consider if they are thinking about opening a corporate coworking space.

Also called hackerspaces or innovation labs, these establishments act as communal workshops where makers can share ideas and tools. They can pop up anywhere, including in schools, libraries, and community centers. Different locations offer different resources, ranging from 3D printers to synthetic biology kits.

If you've never been to a makerspace, you should go. They are a lot of fun.

August 11, 2016

While many think the forecast is too conservative and that coworking is growing faster, others wonder if we aren't too optimistic and if our forecast should be lower.

We readily admit this is a tough industry to forecast. But it's also clearly growing really, really fast.

For example, we took a look at just news from the past week on coworking space openings in the U.S. and Canada.

We did this doing a simple set of Google searches. This probably understate the number of new spaces opening or announcing their plans to open.

We found 62 U.S. and Canadian space openings or announcements over the prior week.

We don't know if this was a representative week, but if it was it would indicate over the course of year there would be a bit over 3200 new space openings or announcements in the U.S. and Canada. We're not going to try to this for the entire world (our coworking forecast is global) because it would be way too much work for blog post.

But if there are 3200 new spaces over the next year in the U.S. and Canada alone, the folks who think our coworking forecast is too conservative are correct.

Covo Coworking, another coworking space combining food, alcohol and coworking had their opening party last week in SF. It's a tap room at night, so maybe they will have Moosehead. Covo's Cafe is pictured below.

This is just a subset of the coworking news for last week. Coworking really is booming.

August 02, 2016

We recently released our 2016 coworking forecast and we are projecting continued rapid growth over the next 4 years, although at a slower rate than the industry's current dizzying pace.

As the chart below shows, we expect the number of global coworking spaces will grow from a bit over 11,000 this year to just over 26,000 in 2020.

For those with a statistical bent, this is a compounded annual growth rate of 23.8%.

We expect the number of global coworking members to increase from about 976,000 in 2016 to just over 3.8 million in 2020.

This is a 41% compounded annual growth rate.

The member growth forecast is higher than the space forecast because coworking spaces are getting bigger, both in size and number of members:

new spaces tend to be much larger than older spaces.

existing spaces are expanding by adding more space and members.

coworking facility operators continue to figure out how to serve more members per square foot of space.

spaces outside of the U.S. tend to be smaller than U.S. spaces, but the gap has been closing and will likely continue to close.

According to Deskmag, the average number of members per space roughly doubled over the past two years. We see this trend continuing, but at a lower rate. We're forecasting a 77% increase in the average number of members per space over the next 4 years.

The forecast shows coworking space and member growth slowing steadily over the forecast period.

The number of spaces are forecast to grow 18% in 2020, down from a 41% growth rate in 2016. This, in part, reflects the larger space sizes. But it also reflects a maturing market and the challenges associated with rapid growth as an industry gets bigger.

Member growth also slows over the forecast period, but is still growing at a very brisk 26% pace in 2020.

So is this forecast reasonable?

In terms of share of the market, coworking will still be small to tiny in 2020 depending on your market definition.

In the U.S. alone we estimate that about 22 million people could be coworking space members. The global number is much, much bigger. So 3.8 million global members is still likely less than a 4% penetration rate.

In terms of other metrics, the real estate firm JLL points out that coworking spaces only comprise "0.7 percent of the total U.S. office market" and less than that outside of the U.S. This forecast would move this to a bit less than 2% of the U.S. office market in 2020.

Prior to 2014 our forecasts were low to on target. In the 8 years we've been doing coworking forecasts, we've yet to have one that turned out too optimistic.

But we've yet to see the coworking industry go through a recession - and one is likely over the next few years. A major recession could, of course, have a major impact on the industry - and potentially make this forecast too high.

July 19, 2016

In 1973 Stanford professor Mark Granovetter described the powerful role that "weak ties" – links among people who are not closely associated - play in spreading ideas, finding jobs and helping people join together for action.

In fact, weak tie impacts are likely even stronger due the Internet and social media.

Key quote:

But over and over again, studies and surveys show us that "weak connections" are key to getting the job of your dreams—not the strong ties that everyone places so much weight on.

This is confirmed by LinkedIn's data, which shows people are more likely to be referred for jobs by their second­ and third­ degree connections than their first degree connections.

There are several reasons weak tie networks are so important.

The main reason is simply size. Because most people have many more weak tie connections than strong ties, their weak ties are more likely to be aware of opportunities.

But the Fast Company article also points out something we've also seen in our research. Strong ties can be hesitant to recommend their strong tie connections. Key quote on this from the article:

"... concluded from in-depth interviews with 146 blue-and white-collar workers that strong ties don’t matter as much when it comes to landing a job for two reasons.

The first, "the costs of making failed matches" mattered more to them than "the benefits of initiating successful matches," meaning they’re too invested on what would happen to them if things didn’t work out. Second, they know too much about their close connections’ flaws, whereas weak ties can more easily rave about their referral’s positive attributes without being aware of their foibles. Hence, they can make the referral with a sound mind."

These findings have very important implications for freelancers and coworking.

1. Networks and weak tie connections are, if anything, becoming even more important than in the past. We've done a number of studies on this topic and we've concluded It's All About Networks when it comes to being a successful independent worker. Maybe we should change this to It's Really All About Networks.

Traditional 9-to-5 work is no longer the norm; it’s just another option.

... professionals need to keep doing what they've always had to do: Work your connections. Keep learning. Stay flexible. And always keep an eye on the market, because new, never-before-seen opportunities will be waiting around every corner.

These are also, of course, good advice for independent workers (and reasons to join a coworking space).

It started as venue for events, social activities and a home for fashion photographers. But they've recently announced they are adding coworking to their long list of activities.

Key quote from the article:

Known as Spring Place, the co-working/member’s club concept goes beyond just offering stylish work environs in an enviable zipcode. Spring Place does one better by providing a world-class concierge service (one recent coup includes procuring tickets for the musical Hamilton at short notice), production and editing suites, a reference library, private catering and tech support at the ready to overcome any problems. Together with beautifully designed boardrooms, executive suites, temporary showrooms and insulated conference call booths all spread over an entire floor of the building, Spring Place offers a forward-thinking selection of amenities in one very pretty package.

Of course it’s no good to just focus on work. On a separate floor, Spring Place also operates an all-day dining restaurant, bar and lounge, which in turn comes with two private dining rooms for more reserved situations. A glamorous, sunken living room and a cosy, den-like music room are available for performances, receptions, workshops, guest speakers and more.

Spring Place, which is planning on expanding to cities across the globe, is not the only space combining and blending work and social spaces.

June 16, 2016

We were surprised to see that several of the reasons given for Microsoft's acquisition of LinkedIn relate to coworking.

At a very high level both Microsoft and LinkedIn execs are explaining the main deal driver is the opportunity of combining productivity applications and networking.

Key quote from MSFT's CEO's memo to employees on the deal:

"Think about it: How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world. It requires a vibrant network that brings together a professional's information in LinkedIn's public network with the information in Office 365 and Dynamics."

An even more interesting quote comes from the memo LinkedIn's CEO sent to employees:

"Leveraging our subscription capabilities to provide opportunities to the massive number of freelancers and independent service providers that use Microsoft's apps to run their business on a daily basis."

Back to MSFT's CEO on a LinkedIn powered MS Office potentially helping to connect companies to external talent:

... Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete.

So it seems pretty clear at least part of the reasoning behind this merger is to create products and services that improve independent worker productivity and networking opportunities. The firms also seem to recognize the growing need for tools that support blended teams of independent workers and traditional corporate employees.

Sound familiar?

Coworking's main value proposition is increasing member productivity and networking opportunities. They are also places where workforce blending occurs naturally.

While there are other reasons for this deal, it's clear that both firms recognize that independent work and blended teams are becoming increasingly common.

Recognition of these changes in how work is done by Microsoft and LinkedIn means this merger is good news for coworking on several levels:

1. Microsoft and LinkedIn's recognition that blended workforces, independent workers and networking with externals are key pieces of the future of work will increase the broader acceptance of these shifts, especially with large corporations. This will lead to more corporations viewing coworking as part of the future of work.

2. The combined firms will no doubt come up with new tools and capabilities that will make it easier and more effective to collaborate in blended workgroups of company internals and externals. This will improve the productivity and efficiency of those working in coworking spaces.

3. The broader acceptance of this shifts and the advent of new tools will lead to more independent workers and micro businesses. These firms will need workplaces and will increasingly gravitate to shared workspaces.

This merger is yet another example of the trends and forces changing the global economy and how and where work is done - the same forces that are driving the growth of coworking.

Second, the article says Level Office paid $4.3 million to purchase six floors of the office condominium building in Chicago. The article didn't mention build out costs, but they will likely be substantial.

This is a far cry from the early days of coworking when most spaces were bootstrapped and built with less than $50,000 in capital.

This shows both the real estate industry and the financial industry now consider coworking spaces to be solid investments. It also shows "big coworking", which we define as spaces bigger than 250 members, is here to stay.

BTW, we may have to change our definition of "big coworking"; 250 members no longer seems very big.

At the same time smaller, specialty coworking spaces also continue to grow in number.

WE Labs is one of several new work spaces with public-service missions that include supporting low-income and minority entrepreneurs, artists, and social enterprises—nonprofits or for-profit companies that put social goals first. Some of these spaces, like maker-oriented Ponyride in Detroit, are nonprofits; several, like HQ Raleigh in North Carolina, and WE Labs, are for-profit social enterprises called Benefit Corporations (B Corps).

May 23, 2016

The Coworking Industry is an interesting white paper by coworking industry veteran Drew Jones, who is a partner in the boutique coworking consultancy OpenWork.

The paper uses the diffusion of innovation model developed in the book Crossing the Chasm to show that coworking has reached the early majority phase. This roughly equivalent to saying coworking is beginning to enter the mainstream.

The key reason for this is the real estate industry and corporate America are starting to adopt coworking. Key quote:

We are approaching a world of work where building owners and property managers will have to, like today’s coworking spaces, present granular, modular, membership based office solutions directly to their corporate customers.

BTW, Crossing the Chasm first came out back in 1991 and was an immediate best seller. The framework is still used and even appears to be having a bit of a revival. It's been referenced in a number of recent meetings we've had with tech startups.

The "chasm" refers to the most difficult customer acquisition step in the life cycle of a technology product - moving from visionaries (early adopters) buying your product to pragmatists (early majority) buying.

Most technology products don't make it through this step, which is why it's called a chasm.

The reason the authors feel coworking has crossed the chasm is the growing demand for coworking by corporations. According to the paper, this is due to 3 key drivers:

Radical improvement in the quality of workspaces for the spaces that remain

Dramatic increases in choice and flexibility for knowledge workers

The paper also covers the evolution that has occurred in the coworking industry and how it has grown up. Key quote:

"AT FIRST, the growth of coworking was as much a social movement as it was a new way of working and using office space ...Today, as I discuss shortly, coworking has become a business, a subset of the real estate industry, where the relevant metric is revenue per square foot (RPSF)."

It's really about what people are working on in a single coffee shop in Venice Beach, a hip and trendy L.A. beach community just north of Santa Monica.

The article's authors briefly interviewed everyone who working in the Deus Ex Machina coffee shop (pictured above) on a Tuesday at 12:30 PM.

The results of their informal survey are not surprising - most everyone was doing some sort of job related work.

But even though it's just one space, I think the reasons given for working at a coffee shop are representative:

I work better around people.

I feel inspired around other people.

I like coming here because it’s close to home and I’m inspired by being around people.

I love the coffee and the environment here.

I try not to work at home because of all the potential distractions.

Regular readers have no doubt already jumped to the same conclusion I did - these folks would probably love coworking spaces.

Even more interesting is the reaction of the article's authors. Key quote:

Something interesting happened that we weren’t expecting.

As I mentioned earlier, our brains were pleading with us not to talk to anyone in the coffee shop.

As soon as we’d finished though, the both of us were BEAMING.

It felt absolutely amazing to connect with all these people who were previously part of the background. We had small conversations, shared many, smiles and laughs, and left the coffee shop overflowing with energy and raw joy.

We kept telling each other:

That was amazing! I love people! This changes everything! I can’t wait to say hi next time I go back!

In other words, the authors found out that community is good.

I'm not suggesting everyone working coffee shops will join a coworking space.

But if only a very small percentage of folks working coffee shops figure out how beneficial community is, the coworking industry will continue its rapid growth. And I think a small percentage will.